Oireachtas Joint and Select Committees
Thursday, 21 November 2019
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Dual Pricing for Insurance: Discussion (Resumed)
Kieran O'Donnell (Fine Gael)
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I welcome the witnesses. Today, we are again meeting to address the practice of dual pricing for insurance. To assist us in considering this matter, I am pleased to welcome Mr. Fergal O'Leary, member of the commission, and Ms Áine Carroll, director of communications and policy, Competition and Consumer Protection Commission; and Mr. Gerry Hassett, interim CEO and Mr. Michael Horan, non-life insurance manager, Insurance Ireland.
I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of the proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I invite Mr. O'Leary to make his opening statement, on behalf of the Competition and Consumer Protection Commission.
Mr. Fergal O'Leary:
I thank the committee for the invitation to speak about dual pricing in the insurance market.
I am a member of the Competition and Consumer Protection Commission, CCPC, and responsible at commission level for our consumer protection division, public awareness, product safety and policy work. I am joined by Ms Áine Carroll, director of communications and policy.
We are aware that the committee’s primary focus in this matter to date has been on insurance and we will offer our views on same. Given that the CCPC’s role is economy wide, we will also provide details of our work on pricing strategies in a broader context. I hope that this will be of use to the committee as it considers these matters.
By way of very brief introduction, the CCPC works to improve consumer welfare across the economy. We do this through enforcing competition and consumer protection laws, our advocacy efforts and our consumer information activities. Currently, we are active in a number of markets, including ticketing, public transport procurement, the motor sector, nursing homes and in the retail sector for pricing and product safety.
Over the last number of decades we have seen the benefits that competition and market liberalisation have brought in many sectors. For us, telecommunications are a good example of this as consumers went from a situation where there was a single provider and it took weeks or months to get a new telephone line to now having choice, competition and innovation in the market. Where consumers are vulnerable, there is a low level of competition or the potential for harm is high, these sectors require a higher level of supervision and intervention. Sectoral regulators, therefore, have access to industry information thus enabling them to build up knowledge and expertise so that they can see market trends or issues as they develop. They can also, if required, take preventative steps or alter the rules so that they reflect new market dynamics.
In addition to sector specific regulation and regulators, the CCPC enforces competition and general consumer protection laws, provides information to consumers and advocates on their behalf. The roles of sectoral regulators and the CCPC are complementary in that regulators can deal with problems that are specific to their industry, while we can identify and analyse broader cross-cutting trends.
Financial services are particularly complex markets for consumers to navigate because of the risk, value and importance of the products involved. In recent years, the CCPC has been extremely active in the sector. As the committee will be aware, we currently have an ongoing investigation into price signalling in the motor insurance sector. We have assisted the European Commission in its motor insurance investigation. Most recently we commenced a study into the public liability insurance market which is an important piece of work for us.
We also work to improve consumer welfare through our advocacy efforts and our financial education programmes. We undertook a detailed examination of the mortgages market, making recommendations on improving competition and identified issues with consumers’ ability to navigate cashback offers. Having witnessed a significant increase in the popularity of PCP car finance, we completed a market study including commissioning research to understand consumers’ experiences with PCP finance and as a result we made recommendations that they should fall within the same regulatory scheme as car loans and other financial products. In recent weeks a consultation has been opened on a Bill which we hope will soon address this regulatory gap.
Our financial education work is of significant priority to us and in addition to extensive public awareness campaigns we provide mortgages, savings, current accounts, credit cards and personal loan money tools on our website to help consumers compare rates and make informed decisions. Last year we published the first financial well-being study ever conducted in Ireland. The research examined the behaviours and circumstances that influence financial decision-making and the extent to which people are able to meet their current financial needs and their financial resilience to do so. Through our financial education programme we have also delivered independent personal finance information to thousands of employees in workplaces across the country. We also work with the Central Bank and Financial Services and Pensions Ombudsman to ensure the information we provide to consumers is up to date or to share insights or trends that we are seeing in our engagement with consumers.
I mentioned that competition has brought about choice and innovation for consumers. It is also a fact that businesses, where they have one, will use their information advantage to try and maximise the prices they charge. Therefore, in order for the full benefits of competition to be realised, consumers need to be active participants in markets by researching their options and availing of better deals through switching. Over the last decade, as part of our public awareness work, we have used research to identify the sectors where consumers are most and least active and identified what contracts could provide significant savings if consumers moved. We have advocated on behalf of consumers for improvements to be made in switching processes in a number of markets. We have run numerous consumer information campaigns targeting where consumers may benefit from switching providers. Significantly, in financial services we developed and recently redeveloped cost comparison tools to help consumers compare products more easily. Last year, these tools provided details of 518 financial products and received over 180,000 visits.
More recently, however, it is increasingly felt that this may not be enough. Through our market monitoring and through participation in European groups, we are aware of pricing strategy concerns. Relevant reports include the work done by the Financial Conduct Authority and the Competition and Markets Authority in the UK which have examined loyalty penalties across financial services and other sectors. We have also looked at the use of dual-pricing bans and other initiatives in the United States.
In addition, two weeks ago the European Council adopted the omnibus directive to modernise consumer law. Among other things it provides for enhanced transparency in online transactions, in particular regarding the use of online reviews, personalised pricing based on algorithms or higher ranking of products due to paid placements. On personalised pricing, the directive amends Article 6 of the consumer rights directive to insert a specific requirement to inform consumers when the price is "personalised, on the basis of automated decision-making".
A number of reasons have been put forward as to what has changed and why advising consumers to switch may no longer be a sufficient response in all markets. With digitalisation there is a greater opportunity for businesses to know more about us and exploit that information; with the use of the loyalty penalty mechanism, businesses increasingly know that many consumers do not have the time or the ability to switch, so consumers experience successive price increases, sometimes called "price walking" and unfortunately loyalty is no longer rewarded, which is disappointing but is a reality for consumers. Also, products are getting more complex which makes switching more difficult and this amplifies all of the above reasons.
What is the CPCC doing? From our experience in examining dozens of markets per year we know that the solutions are rarely the same across different sectors. The most effective solutions come from an accurate understanding of the problems and their impact on consumers, as illustrated in our work on PCP, mortgages, waste collection and nursing home contracts. Having that clarity not only ensures effective solutions but, crucially, an in-depth understanding of the issues ensures that there are no unintended consequences, such as one consumer group benefitting from an intervention at the detriment of another.
Although work has been undertaken internationally to look at the issues and there have been measures introduced to address them, it is important to stress that the solutions for Ireland need to be developed with the realities of our markets in mind.
As our remit is economy-wide there is an onus on us to look at practices which may be of concern across all markets, to identify where the detriment is and the potential solutions. Therefore, building on our previous switching research, the CCPC is undertaking considerable consumer research into pricing strategies in key consumer markets, including utilities and financial products. We will look at the incidence of switching and price-checking, the impact of loyalty penalties on particular groups of consumers, for example, older consumers or those with low financial well-being. We will examine the role and impact of contracts rolling over. We also think it is important to understand consumers’ perception of fairness: are some happy to pay more so that everybody pays the same price?
Without pre-empting that work I expect that it will result in the following actions in 2020. It will provide a basis for our advocacy work which will include, where appropriate, making recommendations to Government, sectoral regulators and advocacy groups to address any identified consumer harm. This will focus, in particular, on groups of consumers who may find it hard or impossible to switch providers. Specifically in relation to insurance, we will engage with the Central Bank as our research and their market study progresses and will also engage with the Financial Services and Pensions Ombudsman. We will use the research to engage with national and European counterparts to share information and keep up to date with developments. It will also provide us with the basis for a public awareness campaign which will inform and provide information to consumers as to how they can switch service providers.
In conclusion, I am acutely aware that the committee is concerned with and has undertaken considerable work in examining dual-pricing to date. The CCPC recognises the importance of this work and is committed to playing its part as quickly as we can in providing an evidence base for firm actions to help consumers. We would welcome any questions that the committee may have.
Kieran O'Donnell (Fine Gael)
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I thank Mr. O'Leary and call on Mr. Hassett to make his opening statement on behalf of Insurance Ireland.
Mr. Gerry Hassett:
Good morning Chairman. I thank the committee members for the opportunity to speak here.
By way of background I was asked by the board of Insurance Ireland to take on the role of interim CEO of the organisation pending the appointment of a replacement for Kevin Thompson. I have spent over 30 years in the insurance sector primarily with Irish Life and more recently with Great West Life in Canada. In both cases I was focused on the life and retirement part of the business. I now have a consultancy business which I will be returning to full-time once a new CEO has been appointed to Insurance Ireland.
I am pleased to be joined today by Michael Horan, non-life insurance manager with Insurance Ireland.
Insurance Ireland represents the Irish general insurance, health insurance, life assurance, international, reinsurance and captive management sectors. We represent 140 companies providing insurance domestically in Ireland and internationally from Ireland.
About 28,000 people are employed directly or indirectly in the sector, with one in four financial service jobs being in insurance. Our members pay out €13 billion in claims and benefits annually and contribute over €1.6 billion in tax to the Irish Exchequer every year.
The Irish market for motor insurance is currently served by 35 companies. However, the core market is primarily served by eight firms most of which are leading international players, with the balance serving niche markets like high-powered cars or specialist commercial vehicles. There are approximately 2 million Irish consumers with motor insurance and about €1 billion is incurred annually in motor claims. The market is highly competitive and the market share of the various players ebbs and flows in line with commercial activity.
Like any company or trade association, Insurance Ireland must fully comply with the law, including competition law. It was this requirement that informed our recent correspondence with the committee explaining the limitations relating to our ability to make a meaningful contribution on the topic of dual pricing due to the constraints of competition law. Our track record with the committee is one of always being available and open to discussing key policy issues, including the important issue of reform of the sector and issues pertaining to the cost of claims. When it comes to pricing policy, however, the rules are clear. Insurance Ireland as a trade association does not hold, discuss or facilitate any material in respect of the pricing of products. We have no access to data around product pricing or pricing strategies either on an industry basis or for individual firms. The pricing policies of companies is proprietary and highly confidential. For these reasons, it is difficult for us to help the committee in understanding the application of various pricing strategies operating in the Irish market. Competition law means that we cannot discuss how a company strikes a price for a particular risk. This is not something that we know nor something that we should know. I trust that committee members will understand the sensitivity with which we view this topic. We fully respect the committee's role, and having actively participated in previous meetings, we will do everything possible to participate constructively at today's meeting, notwithstanding the constraints. However, I should stress that we will be particularly constrained on the specifics of pricing policies at an industry level and in respect of specific company practices.
While Insurance Ireland has not been directly involved in the Central Bank review of the insurance market, we are aware that member companies have been engaging with the bank in recent months on the topic of differential pricing. We note the decision by the Central Bank to carry cut a formal review to: seek to establish the impact of differential pricing on consumers while at the same time establishing the drivers of consumer behaviour, including how customers engage with the insurance industry; and assess the extent to which these pricing practices lead to outcomes that are consistent with the consumer protection code. We welcome this review. In particular, we welcome the fact that it is evidence-based and will involve a comprehensive data-gathering and analysis phase. While Insurance Ireland does not see itself as being directly involved in the review process, we are confident that member companies will co-operate fully with it and engage proactively on any recommendation made.
I look forward to a good engagement and welcome committee members' questions.
Kieran O'Donnell (Fine Gael)
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I thank Mr. Hassett and call Deputy Michael McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome our guests and thank them for their opening statements. I might start at a broader level with Mr. O'Leary. He referred to an investigation that was being undertaken by the CCPC into potential price signalling by the insurance industry in the motor insurance market. That investigation is over three years old. Will Mr. O'Leary update the committee on where it stands and what progress is being made?
Mr. Fergal O'Leary:
The Deputy will understand that I am somewhat restricted in what I can say, but the investigation turned out to be more complex than we originally envisaged and has taken longer than we would have liked. Without going into great detail, the reason for that is the volume of information that we had to look through to ensure that we covered every angle. We anticipate that it will come to the decision phase in the CCPC in the next couple of months, but certainly early in the new year. At that point, there will be a clear path as to when it will be finalised. The next stage for us is a decision phase.
Michael McGrath (Cork South Central, Fianna Fail)
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Will Mr. O'Leary remind us who is being investigated and what the CCPC is investigating?
Mr. Fergal O'Leary:
We are investigating price signalling. The committee will recall that this issue arose a number of years ago. From our point of view as the enforcer of competition law, there were too many firms in the market signalling future pricing intentions. We wanted to ascertain whether that information was being acted upon across the industry. That meant that we needed to examine a wide number of companies, with well over 1 million documents having been collected as part of that. We are in the region of 40 or 50 witness hearings. All of this is being done to get a picture of what information is flowing around the sector and who is acting upon what piece of it. That is the goal of the investigation.
Michael McGrath (Cork South Central, Fianna Fail)
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Does that imply that, if the CCPC finds evidence of price signalling and its conclusion confirms same, industry parties are signalling to one another what direction prices are going to go, thereby bringing about a level of co-ordination? Is that the central allegation being investigated?
Mr. Fergal O'Leary:
I will speak in general terms. In price signalling, a company is telling its competitors what it plans on doing and they then react. That is different to a cartel, which is a secret agreement and would lead to a criminal investigation by us. Currently, this is a civil investigation. It is about putting information in the public domain that a company's competitors then act upon in terms of their pricing strategies or engagement with their customers.
Michael McGrath (Cork South Central, Fianna Fail)
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Is the CCPC's field work complete? Are we talking about files that are at a very advanced stage and on which the CCPC is close to making decisions?
Michael McGrath (Cork South Central, Fianna Fail)
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If the CCPC believes that there is sufficient evidence to point to price signalling, what are its options and what are the potential sanctions?
Mr. Fergal O'Leary:
In contrast to the cartel side, where we would send a file to the DPP, we have two broad options in our civil competition work. One is to agree commitments with the firms that they will not do this again. The other is to go to court and seek a declaration that the conduct was unlawful.
If the committee does not mind, I will take this opportunity to say that we want more powers in this space. There is a new European competition network directive - the ECN+ directive - that will be transposed in the next year or so. In a civil case situation like this, I hope that it will allow us to make a determination ourselves without having to go to a court and then to impose a fine on the companies. That would be much more efficient and allow us to get more cases through the system and have a larger impact across the economy.
Michael McGrath (Cork South Central, Fianna Fail)
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Apart from getting a commitment from firms that they will not do this again, what is the ultimate sanction available if the CCPC goes to court?
Michael McGrath (Cork South Central, Fianna Fail)
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No financial fines, no individual accountability, no firm sanctions as such.
Michael McGrath (Cork South Central, Fianna Fail)
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Could this investigation lead to a criminal investigation?
Michael McGrath (Cork South Central, Fianna Fail)
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What role does the CCPC have in supporting the work of the European Commission in the latter's investigation, which centres on the issue of potential barriers to entry to the Irish market?
Michael McGrath (Cork South Central, Fianna Fail)
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What will the public see of the CCPC's investigation? Will there be a published report in the coming weeks?
Michael McGrath (Cork South Central, Fianna Fail)
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Who is subject to the investigation? Are certain individual insurance companies?
Michael McGrath (Cork South Central, Fianna Fail)
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Are representative bodies such as Insurance Ireland?
Michael McGrath (Cork South Central, Fianna Fail)
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I will turn to Mr. Hassett about the story being run by RTÉ's "Morning Ireland" programme regarding ghost brokers.
One of Insurance Ireland's member firms, Aviva Ireland, has spoken about it publicly. What is the industry's experience of that issue and what can Mr. Hassett tell us about it?
Mr. Gerry Hassett:
It is a really disturbing development where essentially people put themselves forward to arrange cover for people such as migrants or others who are in very vulnerable situations. Those people pay over money in good faith, believe they have a contract and it is paid for by a fraudulent credit card but the contract is voided and they have no way of knowing. Such incidents vary by company. It is something that ebbs and flows in the marketplace and, as an industry, we want to get better at identifying the signals. I am not privy to the precise details on this but my sense of it is that some companies have been more affected than others. I do not have the detail as to who that might be but there is a sense people are targeting particular companies because they believe they may have a better chance of getting away with it with certain companies.
Michael McGrath (Cork South Central, Fianna Fail)
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As to how it works, the insurance company is paid for the policy but it may be paid for by a stolen card or stolen bank details. As the insurance company is paid, is there a valid insurance policy in place?
Michael McGrath (Cork South Central, Fianna Fail)
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In which case that broker does not pay the company. They just fabricate documentation.
Mr. Michael Horan:
Or they can purchase a real policy from a legitimate insurance company but they change information about the customer such as their age or driving experience to bring the price of the policy down and then they sell the policy to the person and charge the person a fee for doing so. It an issue that has been identified in recent years.
Kieran O'Donnell (Fine Gael)
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Will Mr. Horan go into more detail on that?
Mr. Michael Horan:
The ghost broker purchases a real policy from an insurance company. They operate on social media channels. People contact the ghost broker. They change information about the customer relating to the rating factors. The main rating factor in motor insurance would be a motorist's age, driving experience and no claims history and the ghost broker might bring down the price of the policy to make it more attractive. They sell the policy to the customer and charge a fee but the policy is worthless. The person believes they have bought a bona fide motor insurance policy but it all comes out in the wash later on. In effect, wrong information has been provided to the insurance company. It is a fraud.
Kieran O'Donnell (Fine Gael)
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Is the insurance company paid?
Kieran O'Donnell (Fine Gael)
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Presumably, if the policyholder is involved in an accident there would be no pay-out because there would be no cover.
Michael McGrath (Cork South Central, Fianna Fail)
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In respect of premium income received by the insurance company, is that refunded to the victim of the crime, the person whose card was stolen or whose account was used to pay the premium falsely?
Michael McGrath (Cork South Central, Fianna Fail)
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The Motor Insurers Bureau of Ireland, MIBI.
Michael McGrath (Cork South Central, Fianna Fail)
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There are two direct victims. One is the consumer who falsely believes he or she has a valid policy but he or she does not. The other victim is the person who has paid for the policy and knows nothing about it. The amount of money involved may not be very significant but where insurance companies are aware of it, is the money refunded?
Michael McGrath (Cork South Central, Fianna Fail)
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Mr. Hassett might check that and write to the committee on that point.
Michael McGrath (Cork South Central, Fianna Fail)
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On the question of dual pricing, if I get my motor insurance renewal in the post indicating I will be charged €1,000 next year to continue my cover with that insurance company, and I go on to the company's website presenting as a new customer, and put in all the same information and am quoted €500, that is, €500 less than that the premium renewal I got in the post, is that fair?
Michael McGrath (Cork South Central, Fianna Fail)
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Does Mr. Hassett accept that practice is widespread in the industry?
Mr. Gerry Hassett:
I do not believe we have enough data to make that assertion. That is the reason we welcome the Central Bank review. Certainly there have been case histories. I have heard them quoted and have no doubt those case histories are accurate and valid. I am not sure whether they are outliers or represent the broad trend.
Michael McGrath (Cork South Central, Fianna Fail)
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We had all the main insurers in before us and virtually all of them confirmed they do practice dual pricing.
Mr. Gerry Hassett:
If I could explain the context of this, dual pricing is a practice that happens in the insurance industry in Ireland and across Europe but it is also happens in many other sectors. We even heard Mr. Fergal O'Leary say that the Competition and Consumer Protection Commission's review will be across several sectors. Essentially, it is driven by companies that want to grow their market position. It stimulates competition. As a practice, very often a company might even have a teaser rate as a loss leader to attract new business. There are some dimensions to it that are positive. It stimulates competition in the market, rewards customers who shop around and, hopefully, in time, it would attract new entrants into the industry. That is positive. The question is the extent to which that practice penalises the loyal customer. There must be a balance. For example, a recent CCPC survey shows that motor insurance has one of the highest rates of switching of any market in Ireland. It was up at 27% to 28% annually. I personally believe that is a good thing. It signals a vibrant market and that is a good thing but we must be cognisant of consumers who are loyal to companies and whether they are they being treated fairly. For me, it is a question of balance and getting that balance right.
Michael McGrath (Cork South Central, Fianna Fail)
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Is it not more than using a distinction between new and existing customers? Is it not the case companies use technology to arrive at a conclusion that a customer is very loyal, will not switch or shop around and, therefore, their premium is loaded and they pay much more?
Mr. Gerry Hassett:
I am not privy to the precise strategies and tactics deployed by individual companies. It has always been a core principle in insurance that the more data one has about a risk, the more accurately one can price that risk. That works in several different ways. To take the example of the health insurance sector, if one wears a Fitbit or goes to the gym, one will get a discount. If one puts a black box with all the telematics in one's car, a motor insurance company will give one a discount because the customer is providing more information that allows the company to more accurately price the risk. That issue of data works both ways. For some people, the data will lead to a lower premium. I am not sure of the context within which it is used in individual pricing strategies.
Michael McGrath (Cork South Central, Fianna Fail)
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My final question is for Mr. O'Leary on the way the CCPC will approach this issue. To take the example of mortgages, which typically is the biggest transaction anyone enters into in their life, there is still price differentiation in the market.
Cashback is available to new customers but not to existing customers, and certain banks still offer preferential rates to new customers as opposed to existing customers. We know it is widespread across utility companies. We also know it is happening in the insurance industry. How does the CCPC, as the competition watchdog, the body that has the responsibility of protecting consumers, deal with that? In general, at the level of principle, this practice is widespread.
Mr. Fergal O'Leary:
It is widespread, that has been the case for a number of years, and we must acknowledge that. For us, as I mentioned in our statement, the difference is whether the price differentials are bigger than they were before. Is it the case that firms are using information to test consumer groups to see if they can pull more margin out of those consumer groups? What we want to do with this piece of research, which is broadly similar to what our counterpart in the UK, the Competition and Markets Authority did, is to see how much the loyalty penalty is in the 16 markets that we are going to look at. What we will do then is try to target the customers who are losing out at the moment, see what groups are there, and then we will look at solutions. Traditionally, the solutions we have looked at have been public awareness and trying to get consumers to switch. We are very well aware that not all consumers have access to online information, so a lot of our work, including sponsoring a television programme, is to try to get to people who do not have access to the Internet. However, there is a genuine question, which is the reason we are doing this research at the moment, namely, to see if that is enough. Without pre-empting the work that we will do over the next three or four months, I think we have come to a stage where it is unlikely to be enough to make sure that competition can remain in markets, that new entrants can come in and look for customers, but people should not be penalised for being on long legacy products or the differentials should not be as large as I think we are seeing in some sectors.
Michael McGrath (Cork South Central, Fianna Fail)
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I thank Mr. O'Leary.
Pearse Doherty (Donegal, Sinn Fein)
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I welcome the witnesses to the committee today. I will start with the CCPC. I appreciate the meeting we had on the complaint I submitted to the CCPC on dual pricing within the insurance market. As noted in that complaint, I know that it is not unique to the insurance market. I am pleased the CCPC has already undertaken some work on that and, if I understood correctly, it intends to look further at the insurance market in 2020, including dual pricing.
Mr. Fergal O'Leary:
The work has started already. We have briefed a market research firm. We have had engagement with the Central Bank about its study. We want to make sure that we do not overlap with what it does. We are going to engage with the other sectoral regulators whose markets we are going to look at, just to make sure that we are not doing any overlap or collecting data they might already have. We will take it from there.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. O'Leary stated insurance companies do not reward loyalty. One could even argue that they punish loyalty. What is the basis for that statement?
Mr. Fergal O'Leary:
We have being doing research on public awareness for at least the past decade. What we are seeing in the information we collect when we look at the markets is that loyalty is getting less and less among consumers, which is good. We think that is a reaction to their loyalty not being rewarded. That is the basis for it. There is a tipping point somewhere, which Deputy Doherty has identified in terms of the individual case studies and the file he gave to us. There is a point where public awareness is not sufficient. We want to do public awareness and we will continue to do it, but there are probably other measures we need to look at as well. We know the Central Bank is doing the same in its sector.
Pearse Doherty (Donegal, Sinn Fein)
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What role does Mr. O'Leary envisage the CCPC having in the work that is under way by the Central Bank? Both organisations have a consumer protection role. Does Mr. O'Leary believe they work in silos or do they have a complementary role?
Mr. Fergal O'Leary:
No, we certainly do not work in silos. We have a co-operation agreement with the Central Bank that, first, makes sure that we do not overlap and duplicate what it is doing. We have regular engagement with it on a range of issues. We keep in close contact with the Central Bank. I admit that its study on insurance will be much more in-depth than ours. That is by virtue of the access to information it has. While we have similar powers, it has the consumer protection code and other regulations that allow it to get data in its sector much more quickly and in much more detail than we can. There will be close engagement in the next couple of months. We will provide any assistance that we can but, ultimately, the Central Bank probably has the resources to progress the study mostly by itself.
Pearse Doherty (Donegal, Sinn Fein)
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When does Mr. O'Leary expect the work the CCPC is doing on dual pricing will be complete and when does he expect to release an interim report?
Mr. Fergal O'Leary:
Once we have the research done, which I expect will be in three months, we will release that. We release all of our market research given that we are a State-funded body. We also get a levy from the financial industry. We publish the research that we do. I expect that the initial piece of research will be done in the next three months, and then quickly thereafter we will engage with sectoral regulators to figure out the appropriate response.
The one difficulty that I might mention is that there are some unregulated sectors, such as waste, on our list, and it is going to be harder there because, as shown in a report that we published last year, the State at present does not really have the levers to influence behaviour. The waste sector is composed of unregulated entities from a consumer protection point of view. We will have to work with the Department of Communications, Climate Action and Environment. It will be easier to come up with solutions in regulated markets.
Pearse Doherty (Donegal, Sinn Fein)
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I thank Mr. O'Leary for that. I may come back later with further questions. I welcome the representatives of Insurance Ireland to the committee. The body indicated that it had nothing to offer our deliberations but I am pleased it accepted our subsequent request. Insurance Ireland has been busy in recent days. It hosted a conference on fraud and the compensation culture in Ireland. What is the increase in the number of motor insurance claims between 2014 and 2017?
Pearse Doherty (Donegal, Sinn Fein)
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Just on that-----
Pearse Doherty (Donegal, Sinn Fein)
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If Mr. Hassett does not mind, I will give him the accurate figures. It is 255,000 as opposed to 250,000, and that fell to 200,000 as opposed to 205,000.
Mr. Gerry Hassett:
I am sorry. That was a genuine mix-up. Deputy Doherty is correct. It was 255,000 to 200,000. That is very welcome. The problem is that the cost associated with those claims continues to rise. In the same period, our cost of incurred claims has risen by 17%. The way the costs are split, 25% relates to damage to vehicles. They are relatively small amounts of money. Those costs have fallen in line with the number of cases falling, because it is a fairly routine thing. Unfortunately, the cost of personal injuries continues to rise. That is driven by-----
Pearse Doherty (Donegal, Sinn Fein)
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I wish to speak on that point. I was going to come to that question.
Pearse Doherty (Donegal, Sinn Fein)
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To substantiate that claim, in terms of the continued increase in costs, will the witnesses outline to the committee the total number of settlements for personal injuries in 2014 either in the courts or through the Personal Injuries Assessment Board and the total number that have been paid out by insurance companies in 2018?
Mr. Michael Horan:
To ascertain the position with respect to the cost of motor claims, the second motor data report published by the Department of Finance and the cost of insurance working group shows that the vast majority of claims inflation comes from smaller third-party injury claims below €250,000.
Pearse Doherty (Donegal, Sinn Fein)
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I am sorry to interrupt, but can I get-----
Kieran O'Donnell (Fine Gael)
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Through the Chair. Deputy Doherty has asked a specific question. Can you address that, please?
Pearse Doherty (Donegal, Sinn Fein)
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That is not the question. Let me repeat the question. Mr. Hassett has already confirmed that the number of motor insurance claims has dropped by 22% between 2014 and 2017, with 55,000 fewer claims.
Pearse Doherty (Donegal, Sinn Fein)
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He then argued that it is about the awards made in those cases. I ask Mr. Hassett to put on the record of the committee the total amount of awards paid out through the Courts Service and through the Personal Injuries Assessment Board for 2014 and the total amount paid out in 2018 to validate the claim he has just made to the committee.
Pearse Doherty (Donegal, Sinn Fein)
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We understand.
Mr. Michael Horan:
Between 2014 and 2017 the gross incurred cost of motor claims increased by 17%. The figures for 2015, 2016 and 2017 found that the average award for all claims up to €100,000 increased by over €900 each year. The average Circuit Court award increased from about €16,000 in 2015 to €19,000 in 2018. We are seeing an increasing cost of claims over those years. When all of the claims are taken together, this is seen in the Department of Finance cost of insurance second motor data report. It is also seen in the Personal Injuries Commission report which was published last year. We gave all our settled claims for 2015, 2016 and 2017, and an increasing cost of claims could be seen. It could be seen that the soft tissue award claims were 4.5 times higher than they were in the UK.
Those two reports, the Department of Finance report and the Personal Injuries Commission report, look at all the claims together and show an increasing cost of claims. There is a correlation between the increasing cost of claims and the increasing cost of premiums. It is necessary to take all of the claims together, rather than zero in on different parts of the claims market.
Pearse Doherty (Donegal, Sinn Fein)
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What are the different parts? I have asked twice and will ask for a third time about the Courts Service and PIAB. What is the other part of the claims settlement process? Is it just the insurance companies themselves?
Pearse Doherty (Donegal, Sinn Fein)
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Outside of courts and PIAB, on which Insurance Ireland is refusing to give the total figures-----
Pearse Doherty (Donegal, Sinn Fein)
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-----what is the other part of settlement of claims? Is it just the insurance companies themselves?
Pearse Doherty (Donegal, Sinn Fein)
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Outside the courts and PIAB, is it the insurance company that agrees a settlement?
Pearse Doherty (Donegal, Sinn Fein)
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I will ask for the third time. If the witnesses do not want to put the figures on the record, I will put the figures on the record. I am not asking about individuals or the fact that a whiplash got paid a certain amount. What is the total amount the insurance sector paid out in personal injury claims through the courts and through PIAB in 2014 compared with 2018?
Kieran O'Donnell (Fine Gael)
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Mr. Hassett needs to be specific on the years Deputy Doherty asked about.
Kieran O'Donnell (Fine Gael)
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It is not 2018.
Pearse Doherty (Donegal, Sinn Fein)
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Is it fair to say that between the Courts Service and the Personal Injuries Assessment Board, which deal with all claims outside the insurance industry itself settling the claim, there has been a 15% drop in the total amount of payouts for claims by insurance companies through the years 2014 to 2018?
Pearse Doherty (Donegal, Sinn Fein)
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There has been a 22% drop in the number of people making claims and a 15% drop in the number of claims that are being paid out, outside the insurance industry itself that is settling claims between insurance companies or claimants. During that same period from 2014 to 2017 by how much have motor insurance premiums increased?
Mr. Michael Horan:
I do not accept the Deputy's contention. Looking at the cost of motor claims from 2014 to 2017, the cost of motor claims in 2014 was about €1.1 billion. The cost of motor claims in 2017 was about €1.27 billion, a 15% increase. In the overall scheme of things, the total cost of motor claims in increasing. In addition, while the number of claims has reduced, the Department of Finance report showed that this was largely because damage claims had come down. The second motor data report from the Department of Finance showed that damage claims had come down in number. Damage claims are much less expensive to settle than injury claims. When I say damage claims, I mean the bumps, rear-end shunts and so on, own-damage claims, third party damage claims and windscreen claims. It takes many windscreen claims to make up the value of one injury claim. The Department of Finance report showed that the injury claims under €250,000 were increasing year-on-year by about 7% in cost. That is what is driving the problem for us. That is the defining issue. The cost-----
Pearse Doherty (Donegal, Sinn Fein)
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Is it windscreens that are driving the problem and not personal injuries?
Mr. Michael Horan:
What is driving the problem is the increasing cost of those lower-value injury claims. When I say lower value, in the Department of Finance report we are talking about under €250,000. Soft tissue injuries account for 80% of motor claims for injuries. On whiplash, we know from the Personal Injuries Commission report that the awards for soft tissue injuries in Ireland are 4.5 times higher than in the UK. Looking at the overall cost of claims over the years they have been increasing.
Pearse Doherty (Donegal, Sinn Fein)
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Hang on.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Horan can say whatever he wants here; I want to deal with facts. I want to use Insurance Ireland's facts. Mr. Horan started off by saying he "disputed": does he dispute the fact that there have been 55,000 fewer claims and a 22% reduction between 2014 and 2017?
Pearse Doherty (Donegal, Sinn Fein)
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Just "Yes" or "No".
Pearse Doherty (Donegal, Sinn Fein)
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The value of awards and payouts has come down by 15%.
Pearse Doherty (Donegal, Sinn Fein)
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I know and I will get to that.
Mr. Michael Horan:
The frequency has come down as the Deputy has said. I have explained that is because the number of damage claims has come down significantly, as borne out by the key motor data report published by the Department of Finance, which leads the cost of insurance working group. That looked at all of the cost of claims.
Pearse Doherty (Donegal, Sinn Fein)
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Can Mr. Horan answer the question? Where did motor premiums go between 2014 and 2017, when we had a 22% reduction in the number of claims and a 15% reduction in the value of claims?
Kieran O'Donnell (Fine Gael)
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I wish to raise a point on that specific question.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Horan is making a claim. Let us back this up with fact. I call on Insurance Ireland to give me the average price of insurance for an insured motorised vehicle in 2014 and the average price for an insured vehicle in 2017. We do not have the 2018 data because they have not been published yet. I call on Mr. Horan to give me those two numbers to back up his claim that premiums have been falling. The published Insurance Ireland data will show that they have actually increased from €448 in 2014 to over €660 in 2017, a 50% increase. The figure did not actually decrease in any one of those years despite the fact that we have seen a 22% reduction in claims and a 15% reduction in the amount of awards being paid. I call on Insurance Ireland to give us the figures, or dispute the figures if I am wrong, and back up its contention that motor insurance premiums are dropping.
Kieran O'Donnell (Fine Gael)
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What is the figure?
Kieran O'Donnell (Fine Gael)
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Is that between 2014 and 2017?
Kieran O'Donnell (Fine Gael)
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Let us deal with the facts.
Kieran O'Donnell (Fine Gael)
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I wish to qualify one point. Is it correct that the level of claim awards in the courts went from €141 million to €85 million in that period? Is that the correct figure?
Kieran O'Donnell (Fine Gael)
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That is a reduction of 40% in court claims. That is the reduction in awards.
Kieran O'Donnell (Fine Gael)
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It is a feature that is being used. It is clearly indicative of the actual awards. The basis of the Insurance Ireland premise is that the awards are coming down. I wish to add to what Deputy Doherty has said. It is not only that the figure come down 22% overall. For court awards, aside from the Personal Injuries Assessment Board, Mr. Hassett has said that in many cases claimants are being advised legally to go to court. However, the court awards in that period reduced. We have got feedback from the Court of Appeal in particular that the awards have gone down. Why is that not reflected in a reduction in insurance costs?
Mr. Gerry Hassett:
First of all, the cumulative number of awards has gone down but the average award has gone up. It has gone up by 15%, driven by the removal of the cap. The Personal Injuries Commission found that the average award for soft tissue injury is still rising by €900 every year and now stands at €20,826. That is the average award and it is four and a half times the UK average and still rising.
Paul Murphy (Dublin South West, Solidarity)
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What period do these figures relate to?
Mr. Gerry Hassett:
It is the same period - from 2014 to 2017.
I wish to make another point because it is key. We must make reserve for settled claims and unsettled claims. What we are seeing is that the courts set norms. As these norms show an increase in the awards, two things are happening. More people are opting to go through the court process because they believe the outcome will be better. Second, given the predictability in the system in terms of where those awards are going, insurers are settling cases. The figures shared in respect of the court awards are accurate but they do not present the whole picture. Many of the claims that we have incurred have not yet been settled.
Kieran O'Donnell (Fine Gael)
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A 40% reduction in court awards over that period is significant. That is coupled with a 22% reduction in the number of claims. I will go back to Deputy Doherty presently. Based on empirical work, we have to question the basis of the assertions being made. The figures were presented to Insurance Ireland. It is a clear indication that premiums should be coming down significantly.
Pearse Doherty (Donegal, Sinn Fein)
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I must interrupt here. I have asked Mr. Hassett to back up that claim as well. Is it not the case that the Insurance Ireland fact file gives the average price per insured vehicle and then gives the average price in 2017? Is it not the case that using those data we see an increase in premiums rather than a reduction? Again, we have the insurance industry suggesting that premiums peaked in 2016 and reduced in 2017. However, using Insurance Ireland statistics published in the Insurance Ireland annual report, it does not take a genius to figure out that we actually have an increase rather than a decrease.
Pearse Doherty (Donegal, Sinn Fein)
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I am taking about the annual report of Insurance Ireland.
Mr. Gerry Hassett:
My understanding is that prices have been coming down since the middle of 2016. I believe that when the chief executive officers of some of our members were before the committee over the summer they quoted price reductions in the market of approximately 15% over recent years. Frankly, that was news to me because I am not allowed to even talk to them about those data given the competition constraints, which the committee will understand. Clearly, we have access to the claims data.
I believe the average size of awards is a critical number because that is what dictates claimant behaviour. It also dictates insurer behaviour in settling claims. Why would an insurer add additional cost to go all the way down to the end of the line in a court process when the outcome is predictable?
Pearse Doherty (Donegal, Sinn Fein)
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I am seeking clarity on this point. Is Insurance Ireland telling the committee that the average premium for an insured vehicle in the State decreased in 2017?
Pearse Doherty (Donegal, Sinn Fein)
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Insurance Ireland cannot tell us about individual figures but the organisation has the average across the industry.
Pearse Doherty (Donegal, Sinn Fein)
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Insurance Ireland has completely disputed that. It has disputed it with the Department of Finance in the context of the motor insurance group. It has suggested that the CSO collection of data is wrong. We all know that it uses only one subset of insurance. In any event, Insurance Ireland provides data to its European colleagues for the reporting they do across the motor insurance industry. Is that correct?
Mr. Michael Horan:
We have not disputed the CSO motor insurance index. Deputy Doherty has quoted it plenty of times. What I am saying is that the CSO motor insurance index has reduced over the past three years, since mid-2016. It is 27% lower now than it was in mid-2016. That correlates with the fact that motor claims costs are stabilising and falling and that is flowing through into pricing as the CSO index shows. The point I am making is that the reason motor claims costs have stabilised is that damage claims primarily have fallen. These include policyholder damage claims, third party damage claims and windscreen claims.
We have not actually addressed the defining issue, namely, the high level of personal injury awards in Ireland, especially for soft tissue injuries. Some 80% of motor claims are for whiplash. We need to address the defining issue. The high level of awards is a cost and a problem. It has bedevilled the Irish claims environment for decades. We need to address that fundamentally. Earlier this week, we welcomed the announcement by the Chief Justice of the interim personal injuries guidelines committee as part of the Judicial Council, which will recalibrate those awards.
We welcomed the other point made by the Chief Justice that in future when those judicial guidelines are produced judges who depart from the guidelines would need to explain why they have done so. That would bring more consistency as well. This is something the insurance industry sought for many years. We need consistency in award levels because historically there has been a lack of consistency and this makes insurance companies uncomfortable in terms of their reserving.
We want more consistency and we want to see a recalibration of awards to reduce the differential that exists between high whiplash awards in Ireland and those in the UK. More than €20,000 can be got for a whiplash award in Ireland and much less in the United Kingdom.
Pearse Doherty (Donegal, Sinn Fein)
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I agree on that point. We agree in terms of the-----
Pearse Doherty (Donegal, Sinn Fein)
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I made the point — Mr. Horan does not dispute it — that the award level has actually been dropping over recent years.
Pearse Doherty (Donegal, Sinn Fein)
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What is the cost of claim ratio now in the motor insurance sector in Ireland? Is there a figure for 2018?
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Horan should just stick to 2018.
Pearse Doherty (Donegal, Sinn Fein)
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It is 71%. Was the average in the European Union 75%?
Pearse Doherty (Donegal, Sinn Fein)
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We had representatives of a number of insurance companies in. Is the delegation talking about figures for 2017 or 2018?
Pearse Doherty (Donegal, Sinn Fein)
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We had representatives of a number of insurance companies, including AXA and Aviva, before us and I asked them all the questions about the claims ratio. They are saying the claims ratio is now 65%, which means that for every euro taken in, 65 cent is paid out in claims. It is a good indicator in respect of claims. The other part will be made up of either the industry's profits, which have increased significantly, or the operational cost. How is it that the claims ratio in Ireland is significantly lower than what the European average is reported to be? In some cases, as with the companies before us, it is 10% lower. In other words, it is 65% rather than 75%, yet Insurance Ireland continues to peddle the suggestion that there is a massive compensation culture here.
Mr. Michael Horan:
A generalisation cannot be made for one year. The Deputy is taking one year, stating what some CEOs have said is the claims ratio and comparing it with the European average. I am saying the claims ratio for recent years has been in the mid to late 90s. It needed to come down to a lower level. If it had not, the market would have been completely unsustainable. Insurance companies need a return on their investment. The measure of success in terms of all the reforms we hope will be made will be whether we will see more insurance companies coming into the Irish market. Will we see more motor insurance companies coming into the Irish market?
Pearse Doherty (Donegal, Sinn Fein)
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Maybe if the insurance sector were not working as a cartel and if it were not engaging in price signalling, and if there were not a failure to share data with European competitors, in respect of which there are two investigations-----
Pearse Doherty (Donegal, Sinn Fein)
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-----we would have more competition in the industry.
Pearse Doherty (Donegal, Sinn Fein)
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Are there two investigations?
Pearse Doherty (Donegal, Sinn Fein)
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Is one on price signalling, which would be-----
Pearse Doherty (Donegal, Sinn Fein)
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Is the other investigation on access to data by competitors that might want to enter the market? Is that what needs to be proven, or not?
Pearse Doherty (Donegal, Sinn Fein)
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Yes. That implies access to data that competitors would need to gain access to the market.
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. Hassett accept that dual pricing exists in the Irish insurance industry?
Pearse Doherty (Donegal, Sinn Fein)
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I will come back with a second round on dual pricing.
Kieran O'Donnell (Fine Gael)
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I have a few quick questions for Mr. Hassett and Mr. Horan in order to have full clarification. Is it correct that court awards in the motor industry fell from €141 million to €85 million between 2014 and 2017?
Kieran O'Donnell (Fine Gael)
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That is a reduction of 40%. What was the average court award? I am assuming the figure includes the District Court, Circuit Court and High Court. Am I correct?
Kieran O'Donnell (Fine Gael)
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What about all courts? That figure was for one specific court.
Mr. Michael Horan:
The Circuit Court figure is the figure we have. That is the court covering all the claims we are talking about, that is, the soft tissue claims and the whiplash claims under the Circuit Court limit of €60,000. The average whiplash award is in the region of €20,000. If the cases go to court at all, they end up in the Circuit Court.
Mr. Gerry Hassett:
May I make one point of clarification that is important if our position is to be understood? The key point for us in terms of reserving and pricing is the cost of incurred claims. Incurred claims are made up of a number of factors, including the claims the companies settle directly, the PIAB awards, the court awards, settlements in court and unsettled claims.
Kieran O'Donnell (Fine Gael)
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Which is a judgment call by the insurance company.
Mr. Gerry Hassett:
It is a judgement call but it is a judgment call that is informed by known norms within the court system. If there is a known figure for a certain injury, why would a company try to prolong a process and add to its cost when the outcome is highly probable? From our point of view, the cost of personal injury awards is driving the cost of incurred claims up. That cost of incurred claims is up by 18% in the same period even though the number of claims is down. I understand that, logically, might not appear to make sense but it should be remembered that, from a monetary point of view, personal injuries account for 75% of all claims costs. That is the number that is really out of kilter. If we could have structural reform and reduce the average claims cost, the cost of claims could come down quite dramatically.
Kieran O'Donnell (Fine Gael)
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If the cost of personal injuries claims came down, would there be a direct correlation with the reduction in the cost of insurance premiums? If personal injuries claims costs reduce by 20%, would we see a 20% reduction in insurance premiums?
Kieran O'Donnell (Fine Gael)
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Does Insurance Ireland own a database on claims?
Mr. Gerry Hassett:
First, we do collect aggregate claims data for our fact file. These are the numbers we are quoting. I should say, however, that for the past 12 or 18 months, the member firms have been co-operating with the Central Bank to create a national claims information database. I believe that the first-----
Kieran O'Donnell (Fine Gael)
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I am aware of that.
Kieran O'Donnell (Fine Gael)
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On the specific issue, do the member insurance companies have access to the aggregate claims data Insurance Ireland compiles?
Kieran O'Donnell (Fine Gael)
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How do the delegates view legal fees in the context of insurance premiums? This has not been mentioned to date.
Mr. Michael Horan:
Legal fees add an unnecessarily large amount to the cost of compensation. Historically, legal fees added over 40% to the cost of compensation. We still regard legal fees as a problem. We regard the main problem to be the level of awards and consistency in the level of awards. We also regard legal fees as a major problem. Legal fees need to be addressed also. The national claims information database, regarding which there will be some outputs and a report published in the coming months, will show the high levels of legal fees as a percentage of compensation.
Kieran O'Donnell (Fine Gael)
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I do not buy that analysis. If one is providing reserves based on a combination of actual awards plus expected awards, that is a finite and absolute figure and that figure is then built into a provision within the accounts of the individual insurance companies which dictates the overall level of the premiums they will charge. If the overall number of claims is down by 55,000 and the overall number of awards, particularly in the courts, is down by 40%, it stands to reason that the average could go up. If there are fewer people claiming, the average could go up. I do not wear that argument. It should be the amount of awards overall for the company that dictates the level of premiums and the way it prices among all its customers. I do not buy the argument on the average.
Mr. Gerry Hassett:
I disagree with the Senator but I can see the logic of his position, so let me try to explain where we are coming from. First, 75% of awards relate to personal injury claims. While the number of cases is relevant, the amount of money is dictated by what is happening in the personal injury section. Second, even though the case count is coming down, that is in the year in which a claim is made whereas, typically, personal injury cases take three, four and five years to go through the system so there is a sort of multi-annual process. What we are also seeing is a reduction in the number of cases in the Personal Injuries Assessment Board and more cases going through the Circuit Court process. Therefore, the total numbers are masking some of the trends that are happening underneath the bonnet.
Kieran O'Donnell (Fine Gael)
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The point I am making is that, for the incurred claims, the element that is provided for expected claims is a judgment call. One could make the case that an insurance company is being very prudent in that it errs on the side of caution and it ups the amount it provides. The trend is that the number of claims overall has gone down by 20% and court awards have gone down dramatically - by 40% in the period - yet we are not seeing reductions. We had the insurance companies before us recently and I went through their figures. They are looking for an average net return on premiums of 5% or 6% but many of the companies are earning substantially more than that. The insurance companies will blame the legal costs and the claims, the legal profession will blame the insurance companies and it is the consumer who is losing out. While we will probably not agree, I believe that making the argument purely on the average does not stand up to scrutiny. When does Mr. Hassett expect to see substantial reductions in motor insurance premiums?
Mr. Gerry Hassett:
The Senator made a number of remarks. He is correct that the reserve made in regard to unsettled claims is a judgment, but it is a judgment that firms take extremely seriously. There is a prudential regulation regime to make sure that companies get that right because, from an insurance company's point of view, to get that process wrong would lead to severe financial risk, not just to the company, but to policyholders. Unfortunately, once a decade Ireland has endured an insurance failure - the last was Setanta - and we have all been privy to the hardship, not just to policyholders, but to the victims of accidents of those policyholders.
The Senator used the word "prudent". Insurance companies have to be prudent, although I accept that is within limits and they will be conservative based on reality.
Kieran O'Donnell (Fine Gael)
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Prudence is not an excuse for overcharging.
Mr. Gerry Hassett:
I accept that 100% but I think prudence is in the interests of the customer. The customer needs to know. The customers are paying their premiums today and it might be three or four years before they need to get the claims. They need to know the money will be there. That is a protection for the consumer and it was a point the Central Bank made in addressing this.
Kieran O'Donnell (Fine Gael)
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I want to turn to Mr. O'Leary. What powers does the CCPC have? I am more interested in the CCPC coming to a decision around the whole area of price signalling. What real powers does the CCPC have?
Kieran O'Donnell (Fine Gael)
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Are CCPC decisions legally binding?
Mr. Fergal O'Leary:
Yes. Either we have that commitment or we go to court and we ask the court to look at the evidence we have presented to it and to make a declaration that the conduct has been a breach of competition law. However, we feel, as I have said previously, that we would like to have the power for civil investigations to make findings ourselves as an organisation and to impose fines on firms.
Kieran O'Donnell (Fine Gael)
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If the CCPC takes an insurance firm to court, what are the size of the fines?
Kieran O'Donnell (Fine Gael)
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There are no fines at all.
Kieran O'Donnell (Fine Gael)
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If the CCPC finds against insurance companies and says they are price signalling, there is a slap on the wrist.
Kieran O'Donnell (Fine Gael)
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Mr. O'Leary would not disagree. How does a case go from being price signalling to a cartel inquiry?
Kieran O'Donnell (Fine Gael)
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Let me paint a hypothetical picture. People meet in a back room and agree a pricing structure. They go out the following day and one of them puts something into the media and they price signal. What is the difference?
Kieran O'Donnell (Fine Gael)
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It is about the substance of what they have done. If I work for an insurance company, and I am in a darkened room and I make phone calls and agree a price, and then the following day I issue a statement and I price signal, can I go from a mortal sin to a misdemeanour by putting out a press statement that is price signalling?
Kieran O'Donnell (Fine Gael)
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Mr. O'Leary is missing my point. If that manifests itself by someone issuing a press statement and price signalling, as far as I am concerned, in substance, they are the same thing. There is a danger. To put it this way, if I can turn a criminal offence into a civil offence, I am a much happier person, so I might mask a cartel as being price signalling. How can the CCPC differentiate between the two? If it is regarded as price signalling, as far as I am concerned, the CCPC can spend as much time as it wishes investigating but, at the end of the day, the companies can whistle "Dixie" to it because it has no impact. They will get a tap on the wrist and be told they are bold boys, or whatever, but there are no other implications for them. Many of the public believe there is a cartel in place. How can the CCPC distinguish between the two? It appears to me the action on price signalling has no impact.
Kieran O'Donnell (Fine Gael)
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There is a big difference.
Kieran O'Donnell (Fine Gael)
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If the commission has powers under the civil law, that would be fine but it appears that it has no powers.
Kieran O'Donnell (Fine Gael)
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Not in substance. People need to understand that this is not personal. We have a job to do here and must ask these questions. In essence, the CCPC cannot issue a fine, although it can issue a commitment. It can take insurance companies to court but, ultimately, there are no sanctions in court so it is a Pyrrhic victory. When the CCPC looks at this price signalling issue, does it also look at the issue of criminal intent? I assume that by definition, "criminal intent" must be a cartel.
Mr. Fergal O'Leary:
To answer the Acting Chairman's question straight, it is the evidence that tells us. Our current director of what we call civil competition and mergers previously worked in our cartels division. People who might be listening may find the way this works for us internally difficult to understand but we come to each part of this, look at the evidence and ask ourselves whether we can continue with this, whether we need to close it and what other options we have. At all times, we have a process if any information becomes available to us that moves outside the civil space and into the criminal space and there is no issue with using that information.
Kieran O'Donnell (Fine Gael)
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Is any element of that process under way in terms of the CCPC's findings to date?
Kieran O'Donnell (Fine Gael)
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Were the Houses of the Oireachtas to bring in legislation now that permitted fines and strengthened the powers of the CCPC, could that be applied to the CCPC's findings? What years is the CCPC looking at?
Kieran O'Donnell (Fine Gael)
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Were the Houses of the Oireachtas to bring in legislation to strengthen powers to fine and the powers of the CCPC in terms of reprimanding, could they be applied to the CCPC's findings in the new year?
Mr. Fergal O'Leary:
There will be legislation in this House in about a year's time. We are engaging very closely with our parent Department - the Department of Business, Enterprise and Innovation - as to what that legislation might look like. Obviously, we input into its policy decision. It is discussing scope with the Office of the Attorney General and the Office of the Parliamentary Counsel. It involves how much of competition law will be involved. Will it be just European offences or will it cover Irish offences as well? Can there be any kind of retrospective assessment? I do not want to mislead the committee. Based on my experience, it is unlikely that when legislation comes in, it can be made retrospective.
Kieran O'Donnell (Fine Gael)
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In respect of a point previously put to Mr. Hassett, does he believe a cartel is in place in the insurance industry?
Paul Murphy (Dublin South West, Solidarity)
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I will cut to the chase in terms of the insurance industry. I think the narrative being spun by the insurance industry about how the primary issue is an increase in claims is falling apart. It is not working well for the industry. The facts do not illustrate it. The dual pricing issue is part of that. Perhaps we can start there before going back to the figures. I am not asking Mr. Hassett to comment on concrete cases or on Insurance Ireland members doing this or that but if it is the case that dual pricing is happening, is the fact that non-actuarial factors are being taken into account when setting the price for customers a problem?
Mr. Gerry Hassett:
I do not think that dual pricing in itself is a problem. I think there are issues that may or may not arise in how it is applied. It is a question of getting the balance right between having a competitive market and always making sure there is value out there for people who want to switch and at the same time, treating existing loyal customers fairly.
Paul Murphy (Dublin South West, Solidarity)
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If my twin brother and I have the same job, the same living conditions, the same sort of house, the same car - are identical for all actuarial purposes - Mr. Hassett does not think there is a problem if I, as a loyal customer of insurance company A, could be charged substantially more than my brother, who is a customer of insurance company B but is looking at insurance company A. Mr. Hassett does not think this is necessarily a problem.
Paul Murphy (Dublin South West, Solidarity)
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So Mr. Hassett does not agree that such a practice could discriminate against people based on their age, not as an actuarial factor, but to do with the fact that they may not be checking the Internet or scouring price comparison websites. They may not have the time to do it. Mr. Hassett does not think that is necessarily a problem.
Mr. Gerry Hassett:
I do not have enough information to answer that question. People have raised issues and concerns around that. For the benefit of the market, getting proper data on that will be very helpful. As I said, it is about how it is applied, which is why we are supportive of the Central Bank review. We also very much welcome the CCPC review because it is important that people have confidence that whatever pricing strategies are being applied are applied fairly.
Paul Murphy (Dublin South West, Solidarity)
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What non-actuarial factors is it fair to take into account when setting price?
Mr. Gerry Hassett:
Companies have different risk appetites at different times. Sometimes they want to grow their market share while at other times, they might feel they have enough of a certain risk. Companies' pricing strategies ebb and flow depending on what they see. That reflects competition and a competitive market and in itself, is not inherently a bad thing.
Paul Murphy (Dublin South West, Solidarity)
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What is Mr. Hassett's attitude to legislation along the lines of legislation found in various states in the USA that bans this kind of dual pricing?
Mr. Gerry Hassett:
I think we must be really careful when it comes to bringing in regulation of price. People can set out with the best intentions. It is an area full of the law of unintended consequences. If, for example, bringing in a rule like that reduced competition, that may not be a good thing.
Paul Murphy (Dublin South West, Solidarity)
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Who does Mr. Hassett represent?
Paul Murphy (Dublin South West, Solidarity)
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Who does Insurance Ireland represent?
Paul Murphy (Dublin South West, Solidarity)
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What is the aim of the insurance companies that Insurance Ireland represents?
Paul Murphy (Dublin South West, Solidarity)
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That sounds really good. They are not interested in making profits. That is not a primary motivation for them.
Paul Murphy (Dublin South West, Solidarity)
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Mr. Hassett did not mention that when he said their motivation-----.
Paul Murphy (Dublin South West, Solidarity)
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Could their interest in maximising their profits be a factor in Insurance Ireland's opposition to banning dual pricing? Could it be that Mr. Hassett is not some disinterested individual? I do not mean in any material sense but in the sense of those he represents. Clearly, there is a happy coincidence between Insurance Ireland opposing the banning of dual pricing and the interest of the insurance companies in maximising their profits.
Mr. Gerry Hassett:
First of all, it is not for me to decide what is or is not regulated. What we want is a competitive market where people can find value.
Those who may make that decision, who would be people in this room, various regulators etc., will consider a range of factors. The key is finding the optimum balance. I have not seen anything yet that has said a ban of dual pricing improves the long-term competitiveness of the market, which ultimately is in the consumers' interest.
Paul Murphy (Dublin South West, Solidarity)
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I will focus on some figures. I have figures to hand which are compiled by Noteworthy, the investigative platform of thejournal.ie. They suggest that total awards for personal injury cases fell by 28% between 2014 and 2018 in spite of rising premiums. Insurance Ireland disputes that.
Paul Murphy (Dublin South West, Solidarity)
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Is that "inaccurate" or "an accurate", if Mr. Hassett knows what I mean?
Paul Murphy (Dublin South West, Solidarity)
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Is that the 28% figure?
Paul Murphy (Dublin South West, Solidarity)
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It is but, looking at the fuller figures, it includes a reduction of the same percentage in Personal Injuries Assessment Board, PIAB, awards as well. Noteworthy proposes there is a 28% drop in that period of time in court and PIAB awards combined. Is that accurate?
Anthony Lawlor (Fine Gael)
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Is that the total cost of claims?
Anthony Lawlor (Fine Gael)
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Can Mr. Horan give us those figures?
Anthony Lawlor (Fine Gael)
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The proof of that.
Mr. Gerry Hassett:
Although not precisely the same timelines, the following is highly relevant. The second motor data report, which was published under the cost of insurance working group, shows that the vast majority of claims inflation comes from smaller third-party injury claims, the cost of which increased at an average rate of 7.3% per year, up 42% in total from 2011 to 2016. In that time the damages costs fell by 17% but the bigger figure - it is 75:25 - is the one that is rising.
Paul Murphy (Dublin South West, Solidarity)
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I will put other figures to Mr. Hassett and he can tell us whether these are accurate. They have a figure for total motor and liability premiums - the total taken in by the insurance industry - of €1.35 billion in 2012 rising to €1.57 billion in 2013, €1.68 billion in 2014, €1.88 billion in 2015, €2.27 billion in 2016, €2.48 billion in 2017. They then have figures for net motor and liability claims, which is, as I understand it, all claims including PIAB, court and other. Those figures are: just over €1 billion in 2012, then up to €1.29 billion, down to €1.25 billion, €1.16 billion, €1.35 billion and €1.31 billion. I am sure Insurance Ireland has looked at this article, analysed it, etc. Are those figures accurate? They indicate a substantial divergence between premiums, which have risen substantially over the course of the past six or seven years, and claims which have varied but remained strictly similar?
Paul Murphy (Dublin South West, Solidarity)
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Does Mr. Hassett dispute those figures?
Mr. Gerry Hassett:
Those figures do not show the full extent of the claims story in the market. I have not checked every one of them. I have no doubt that they are accurate insofar as the specifics stated but they do not represent the full market. They do not represent claims that were settled out of court. They do not represent claims that are yet unsettled.
Paul Murphy (Dublin South West, Solidarity)
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Do they not include claims that are settled out of court? It states that these are net motor and liability claims.
Mr. Michael Horan:
Motor claims costs increased by 44%. There was a correlation between that and premium increases. Between mid-2016 and now, the CSO index for motor shows that it is 27% lower now than it was in mid-2016. That is because the cost of motor claims has stabilised, and fallen in some cases relating to damage claims. It is not me saying that. It is the Department of Finance second motor data report. The report includes the tables for anyone to see. Equally, the Personal Injuries Commission report also took in all the data for 2015 to 2017, inclusive, and showed claims costs for soft tissue injuries increasing year on year by €900 per year. We had that significant differential identified by the Personal Injuries Commission between the UK and Ireland. There is a correlation between increasing claims costs and increasing premiums. The defining issue is to address the high level of personal injury awards, particularly for soft tissue whiplash injuries.
Paul Murphy (Dublin South West, Solidarity)
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I do not agree but I must go. I thank the witnesses.
Kieran O'Donnell (Fine Gael)
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Insurance Ireland keeps quoting figures. Can it give a breakdown? When it is quoting the increase in the awards, is Insurance Ireland including the expected as well? Is Insurance Ireland looking at incurred figures?
Kieran O'Donnell (Fine Gael)
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Mr. Horan quoted a figure of-----
Pearse Doherty (Donegal, Sinn Fein)
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Why is Insurance Ireland quoting gross incurred claims instead of net incurred claims?
Pearse Doherty (Donegal, Sinn Fein)
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In relation to awards, net incurred claims is the issue that we should be dealing with.
Kieran O'Donnell (Fine Gael)
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The question is actual level of claims paid out because there is a figure there that is a moveable figure, which is effectively the expected cost of future claims.
Kieran O'Donnell (Fine Gael)
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We are not comparing like with like. When we are talking about the number of claims that have come down, based on what Insurance Ireland is telling us, as the awards have come down in the courts by 20% that means that the provisions Insurance Ireland is making must be the payouts by the insurance companies prior to going to court, which is where the big increases are.
Mr. Gerry Hassett:
In the period 2012 to 2017, a Department of Justice and Equality report found that there was a 35% overall increase in personal injury cases. Personal injury cases are the cases that drive the numbers here. They make up 75% of the total number. The lion's share of this increase is accounted for by the Circuit Court where the caseload increased by 55% to well over 4,000 cases. That is the trend.
By the way, it is reassuring to see that the overall number of claims is falling. It reflects tremendous work, for instance, on road safety. That is to be welcomed. That was one of the first structural things we needed to do.
The second structural thing we need to do is address the issue around personal injury claims. If we can do that, we can then have a really competitive, normally functioning market in this country.
Kieran O'Donnell (Fine Gael)
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Finally, is it fair to say that the payouts of claims between 2014 and 2017-2018 came down?
Kieran O'Donnell (Fine Gael)
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I am not ignoring them. I am merely making the point - it is a fair point to make - that it is a judgment call by the insurance companies.
Kieran O'Donnell (Fine Gael)
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The insurance companies have appeared before the committee. As far as I am concerned, many of them are making super profits, such that they have got it right. I agree with Mr. Hassett that there is need for more competition in the market.
Anthony Lawlor (Fine Gael)
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It may have lost money, but its tax bill is reduced and it is able to carry losses into the following year. Mr. Hassett's claim is a poor one. The sector is probably paying less tax now than it would have been paying prior to 2013-14.
With regard to what has been revealed today, what is a ghost broker?
Anthony Lawlor (Fine Gael)
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The person would not use the name of an existing broker as cover. In other words, the person would operate under his or her own name.
Anthony Lawlor (Fine Gael)
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For example, could Deputy Pearse Doherty, operate as a ghost broker under his own name?
Anthony Lawlor (Fine Gael)
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I understand. Why did it take Aviva so long to discover that in respect of up to 1,000 of its customers it was dealing with a ghost broker? Is there nothing in its system that would detect new operators and trigger an inquiry in regard to their licence status and so on? It would appear that the insurance companies are not doing due diligence in regard to the brokers they deal with. Is that a fair comment?
Anthony Lawlor (Fine Gael)
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Mr. Hassett represents the insurance companies.
Anthony Lawlor (Fine Gael)
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Should companies undertake due diligence of the brokers with whom they do business?
Anthony Lawlor (Fine Gael)
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I am speaking about a broker who sells insurance policies on behalf of an insurance company.
Anthony Lawlor (Fine Gael)
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In that case, the insurance company facilitates the fraudulent activity.
Kieran O'Donnell (Fine Gael)
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How can an insurance company work with an intermediary that is not licensed by the Central Bank of Ireland?
Anthony Lawlor (Fine Gael)
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I have not used it.
Mr. Gerry Hassett:
It was introduced by Deputy Michael McGrath in the context of a report in a newspaper which referenced the phrase "ghost broker". A ghost broker does not present to an insurance company as a broker. Rather, he or she presents to the victim as somebody who can arrange insurance cover.
Anthony Lawlor (Fine Gael)
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How do they present themselves to the insurance companies? Mr. Hassett said earlier that some insurance companies have taken on these policies.
Anthony Lawlor (Fine Gael)
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I reiterate that the insurance companies are not doing due diligence in regard to the people with whom they are doing business.
Anthony Lawlor (Fine Gael)
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This is adding to the cost of insurance for the ordinary person.
Kieran O'Donnell (Fine Gael)
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Do the insurance companies believe they are dealing with the consumer as distinct from the broker?
Kieran O'Donnell (Fine Gael)
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Senator Lawlor makes a fair comment. It is unusual, given the level of security in respect of the ordinary person making an application online, that the fraud was not detected. It is astounding.
Kieran O'Donnell (Fine Gael)
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Would Mr. Hassett accept that-----
Kieran O'Donnell (Fine Gael)
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I believe that the individuals who were defrauded should be looked after by the insurance company in terms of a refund.
Anthony Lawlor (Fine Gael)
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I will come back to Mr. Hassett later on the substantive issue we are discussing today. I have a couple of questions for Mr. Fergal O'Leary. How many people or companies make up a cartel?
Anthony Lawlor (Fine Gael)
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If insurance company A is at a meeting in a room with insurance company B would that be considered a cartel?
Anthony Lawlor (Fine Gael)
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If insurance company B then meets in another room with insurance company C is that a cartel?
Anthony Lawlor (Fine Gael)
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Most people think a cartel is where all of the insurance companies meet in a room for a discussion but a cartel could be insurance company A meeting insurance company B with a view to reaching agreement on a charge.
Anthony Lawlor (Fine Gael)
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I wanted to clarify for the benefit of the public that a cartel is not ten or 12 companies. It could be just two companies.
Anthony Lawlor (Fine Gael)
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I thank Mr. O'Leary. I would like to return to my questions to Mr. Hassett. There are four legs to this chair: the number of awards being paid out, the legal costs, the fraudulent claims and the profits of insurance companies. Earlier, Mr. Hassett provided us with the following figures for 2014-2017: the Courts Service, €141 million down to €85 million and PIAB €281 million up to €315 million. The number of claims decreased by 2 million over the period yet the total awards increased from €1.1 billion to €1.3 billion. A large number of claims must have been settled outside of the courts. Perhaps Mr. Hassett would elaborate on the reason for this.
Anthony Lawlor (Fine Gael)
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The figures we were given earlier showed a reduction in the number of claims.
Kieran O'Donnell (Fine Gael)
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The information we have is that personal injury claims decreased from 255,000 to 200,000.
Kieran O'Donnell (Fine Gael)
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How many of those were personal injury claims?
Kieran O'Donnell (Fine Gael)
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Mr. Horan has repeatedly stated that personal injury claims increased. Can he substantiate that?
Kieran O'Donnell (Fine Gael)
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I am asking about the number of claims.
Kieran O'Donnell (Fine Gael)
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I am referring to the 255,000 to 200,000 reduction, which is a reduction of 55,000. The witnesses have continually stated that personal injury claims have increased. I am asking Mr. Hassett to substantiate that claim. If the overall number of claims have decreased, surely the number of personal injury claims have decreased.
Kieran O'Donnell (Fine Gael)
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The figures do not lie. If Mr. Hassett is saying that personal injury claims have increased he needs to substantiate that.
Kieran O'Donnell (Fine Gael)
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No. There is a figure of 250,000 versus a figure of 200,000.
Kieran O'Donnell (Fine Gael)
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There is a reduction of 55,000, which is 22%.
Kieran O'Donnell (Fine Gael)
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Insurance Ireland is saying the number of personal injury claims has gone up. I do not believe that is the case because the overall figures are down. By definition the personal injury claims must be down.
Mr. Michael Horan:
It can be seen from the Personal Injuries Assessment Board annual reports over recent years that there has been a steady increase in the number of claims to the board. We have gone from approximately 25,000 claims ten years ago to something like 35,000 claims now, a period during which the population has grown at a much slower rate, so-----
Kieran O'Donnell (Fine Gael)
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I do not buy it.
Anthony Lawlor (Fine Gael)
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The figures show that in 2017, €880 million in payouts had not gone through the courts system. Is that a fair comment?
Mr. Michael Horan:
Most claims do not go to trial. If they did, the cost of the legal fees and so on would be huge. If every single case were to end up in court, both sides would have to pay legal fees, for solicitors and barristers, so it does not make sense for every case to end up in the High Court or the Circuit Court.
Mr. Gerry Hassett:
There is a link between the cases that go through and the cost of the awards given, which informs the decisions to settle claims. If one believed that in a case of whiplash, for example, the award would be €20,800, why would one go to the expense of hiring a barrister for oneself and the claimant? The average amount of the court award dictates the levels at which one settles.
Anthony Lawlor (Fine Gael)
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All I am saying is that insurers settle the vast majority of cases rather than contesting them.
Anthony Lawlor (Fine Gael)
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It is the soft option. The soft option for insurers is to settle and dump the cost of that on the people paying the premiums.
Mr. Gerry Hassett:
If I may respond, the alternative is to run everything through the courts process, run everything down to the very end and incur all the additional costs of that. Those costs would also be dumped on the people paying the premiums. We are trying to use our judgment. If we know that the likelihood in a whiplash case is that the outcome will be an award of €20,800, why should we go all the way?
Anthony Lawlor (Fine Gael)
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We heard from insurance companies previously, in response to questioning from Deputy Pearse Doherty on fraudulent claims, that the number of claims being investigated or passed on to the Garda is insignificant compared with the overall number of payouts insurers are making. The figures the witnesses have cited indicate to me clearly that the soft option, the easy option, for insurers is to settle claims and dump that cost onto the premiums.
I refer to the figure of €1.3 billion as the total in payouts last year. Mr. Horan stated that 40% of the cost of a claim relates to legal costs. Is that right?
Mr. Michael Horan:
Legal costs can add 40% to the cost of compensation in litigated cases. The whole point of the Personal Injuries Assessment Board was to try to reduce legal costs. This goes back to the point we made earlier that there is no point in bringing a case in which one is down on liability to the High Court or the Circuit Court and ending up with two sets of legal fees, that is, a solicitor and a barrister on both sides. In most motor claims the liability is clearcut: one can tell who is at fault for the accident and one works from that and tries to settle on the best possible terms. Unfortunately, we have a dysfunctional system in Ireland in the sense that the level of awards for personal injuries is very high. We need to address that. That is the defining issue and we need to try to recalibrate those awards. The judicial council, we are delighted to hear, will do that.
Anthony Lawlor (Fine Gael)
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Mr. Horan is assuming the council will look at the level of awards. The personal injuries guidelines committee will look at the matter and then make a decision, but the assumption that it will drop the level of awards is false. The judges could leave the awards as the status quoor increase them. We must challenge them on that, but Insurance Ireland should not assume they could drop them.
Anthony Lawlor (Fine Gael)
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Is the 40% in legal costs on top of the €1.3 billion, the total claims last year?
Anthony Lawlor (Fine Gael)
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Mr. Horan said 40% earlier, though.
Mr. Gerry Hassett:
We said that typically, in a litigated case, legal fees add 40% to the cost of a claim. It is hoped that what we will see under the new national claims information database, NCID, from the Central Bank will be the first lens on this. It is very difficult for us to comment. We are aware that there are costs there but we do not have precise data on that.
Anthony Lawlor (Fine Gael)
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This makes it look even worse for insurers because the €1.3 billion they had in 2017 relates to the cost of claims. The premiums they took in that year amounted to €2.48 billion. Are my figures wrong?
Anthony Lawlor (Fine Gael)
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Where did I get the figure of €2.48 billion from? It was thrown out here. I apologise for that. If the figure was €1.8 billion, that is fair enough. I cannot go down that line.
The banks do insurance. I know AIB uses AXA as its product. Are the banks members of Insurance Ireland's organisations?
Anthony Lawlor (Fine Gael)
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The witnesses have no figures to indicate to me the percentage commission they gain.
Anthony Lawlor (Fine Gael)
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The witnesses have no idea of the percentage of the market the banks have. The banks do not have a good record in dealing with customers, as we have seen through increases in mortgage rates and so on.
Anthony Lawlor (Fine Gael)
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They would be got through the individual companies, the banks. I cannot find out anywhere what company Bank of Ireland uses. AIB clearly uses AXA.
Kieran O'Donnell (Fine Gael)
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To clarify, Mr. Horan said motor insurance premiums amounted to €1.7 billion. In what year was that?
Kieran O'Donnell (Fine Gael)
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What was the amount paid out on claims? Was it €1.3 billion?
Kieran O'Donnell (Fine Gael)
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That is a profit of €500 million for the motor insurance industry.
Kieran O'Donnell (Fine Gael)
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It was stated that 70% of claims are personal injuries claims.
Kieran O'Donnell (Fine Gael)
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Mr. Horan is saying 75% of the €1.3 billion insurers' pay out relates to personal injury claims.
Kieran O'Donnell (Fine Gael)
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Okay, but the reduction from 255,000 to 200,000 is in respect of which types of claims?
Kieran O'Donnell (Fine Gael)
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To what does the 75% figure relate then?
Kieran O'Donnell (Fine Gael)
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By definition then, regarding the 75% in moneys paid out, there must be a correlation in that the reduction from 255,000 to 200,000 must involve a reduction in personal injury claims as well.
Kieran O'Donnell (Fine Gael)
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From what year is that?
Kieran O'Donnell (Fine Gael)
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We have a difficulty with time. I am-----
Mr. Michael Horan:
People are talking about premium increases etc. The premium increases correlated with the problems that existed in the claims environment at that time, which were generated by various issues such as the increase in the monetary limits of the courts and so on where insurers had to go back in to their open claims and reserve accordingly for the fact that the personal injuries claims limit in the Circuit Court had increased from €38,000 to €60,000 overnight.
Kieran O'Donnell (Fine Gael)
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Do the witnesses see their body having any role in terms of ghost brokers, interacting with the relevant companies and in any way recompensing the victims of those ghost brokers?
Mr. Gerry Hassett:
I am in this role for a very short time but my sense is that the incidence of it is a relatively recent development. It is something we need to stamp out in the marketplace. We need to step up in that regard and if there are things we need to do, we will discuss that with the members. If there are victims of that, we need to consider the appropriate response to those people.
Pearse Doherty (Donegal, Sinn Fein)
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There is an old saying about statistics and how they can be misinterpreted or presented to support one's argument. We now have Insurance Ireland talking about the net incurred claims costs as opposed to the gross incurred claims and so on. If we deal with the net incurred claims, do the witnesses acknowledge that the net incurred claims from 2014 to 2017 dropped by approximately €24 million for motor insurance?
Pearse Doherty (Donegal, Sinn Fein)
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In 2014, was it not €978 million-----
Pearse Doherty (Donegal, Sinn Fein)
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-----and €954 million in 2017?
Pearse Doherty (Donegal, Sinn Fein)
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I will come to that.
Pearse Doherty (Donegal, Sinn Fein)
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I am going to come to reinsurance. Mr. Horan should not try to second-guess my question. We know that net incurred claims dropped from 2014 to 2017. I am using that period because it was a period in which motor insurance premiums increased by in excess of 50%. Mr. Horan will argue, as he has done, that he has to include the cost of reinsurance. The difference between written gross premium and net written premium is the issue of reinsurance. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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I understand that.
Pearse Doherty (Donegal, Sinn Fein)
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To repeat the question, the difference between the gross written premium and the net written premium would be the reinsurance part of it. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Between 2014 and 2017, gross written premium increased by what?
Pearse Doherty (Donegal, Sinn Fein)
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That would be €700 million extra that motorists would have paid compared with 2014. Would that be correct?
Pearse Doherty (Donegal, Sinn Fein)
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That is right.
Pearse Doherty (Donegal, Sinn Fein)
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That would also increase the number of claims. Claims reduced substantially during that period because there were more motorists and one would think there should have been more claims, but that was not the case. They actually-----
Pearse Doherty (Donegal, Sinn Fein)
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Okay, yes.
Pearse Doherty (Donegal, Sinn Fein)
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Yes, absolutely.
Pearse Doherty (Donegal, Sinn Fein)
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Going back to the point, as a population, motorists paid €700 million more in 2017 compared with 2014. That is correct.
Pearse Doherty (Donegal, Sinn Fein)
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I know that. Mr. Horan has made that point. Will he just accept the-----
Kieran O'Donnell (Fine Gael)
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He accepts the-----
Pearse Doherty (Donegal, Sinn Fein)
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We understand that. We are talking about the total. As Mr. Horan said, reinsurance is an issue. Mr. Horan is making the point that the net figure, which is what was incurred by the insurance industry in terms of payouts and claims, fell during that period but that we need to look at reinsurance. When Mr. Horan takes the issue of reinsurance into account, did people still pay more? Did they not pay an additional €220 million? Mr. Horan argued earlier that premium increase was correlated with claims, but when we look at net premium written during that period, which takes into account reinsurance, we see that consumers were charged an extra €220 million.
Mr. Gerry Hassett:
Can I make one point of clarification? My apologies; it is complex. The premium gathered is gathered in a single 12-month period. It is for a risk in that 12-month period and the insured takes on that risk. However, a claim can be incurred in several years after that period. There is not a direct link in each 12-month period between the premium and the claim. The claims, in particular, are multi-annual.
Pearse Doherty (Donegal, Sinn Fein)
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There is a direct link between the net premium earned and the net claims incurred because net claims incurred not only include the claims paid out in that calendar year but the provisioning for future claims in future years. Is that not the case?
Pearse Doherty (Donegal, Sinn Fein)
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I know, but there is provisioning on the basis of the risk profile within the population at that time.
Kieran O'Donnell (Fine Gael)
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The witness has made his argument about costs incurred rather than actual costs. Deputy Doherty's point is a very valid one.
Mr. Gerry Hassett:
I am very happy to answer the question but it is not a precise balance. We are always slightly out of kilter because we are always trying to balance the premium and the claims experience. One is multi-annual. One is in a single year. The Deputy might say that this happened in this year and that happened in that year, but it is more cyclical than that. That is the key point.
Pearse Doherty (Donegal, Sinn Fein)
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I have a few brief questions. One of Insurance Ireland's aims is to ensure that the industry protects consumers. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. Hassett believe it is fair that when somebody amends their insurance policy, he or she can be charged up to 50% of the premium they are charged? I will give him two examples. I will not mention any company. A husband who is putting his wife as a named driver on his policy enters the date of birth inaccurately. He puts down 1959 as 1958. He spots the inaccuracy, telephones the insurance company and is charged €145 for the pleasure of having that digit adjusted on the computer. Does Mr. Hassett believe that is how-----
Pearse Doherty (Donegal, Sinn Fein)
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What about a person living in the Gaeltacht who gets an insurance policy from the insurance company and notices on the documentation that it misspells the Irish language address on the policy. That person asks for it to be corrected and is charged €175 for that pleasure.
Pearse Doherty (Donegal, Sinn Fein)
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What is Mr. Hassett's view of the fact that insurance companies are pricing young motorists off the road, which unfortunately in some cases is leading some of them to drive without insurance, which is wrong? A case in point is a 17 year old who contacted me who is looking for third-party fire and theft cover for his own car. He is a provisional licence holder, so he would have to be accompanied by a qualified driver. Having gone to an insurance broker, he got the best competitive price he could get in the Irish market, which was approximately €12,300.
Pearse Doherty (Donegal, Sinn Fein)
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Why is the market so broken? We are fleecing such young drivers.
Mr. Gerry Hassett:
It is a pricing risk. With young drivers in particular, the experience in terms of injury awards has been very negative.
Again, it is about addressing the structural issues around the cost of awards. We would really love to improve access to insurance for young drivers. In terms of pricing that risk, however, it is extremely difficult based on the experience.
Pearse Doherty (Donegal, Sinn Fein)
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On Insurance Ireland’s aims and objectives to help the industry to support its consumers, what about the practice of dual pricing? Take the practice of an insurance company operating in Ireland, a member of Insurance Ireland, quoting an existing consumer €4,000 for a renewal. However, when I enter my details into the company’s website, as a first-time customer, I get a quote for €1,200 less. What is Mr. Hassett’s view on that?
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. Hassett believe that this happens?
Pearse Doherty (Donegal, Sinn Fein)
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Has Mr. Hassett ever asked insurance companies about dual pricing?
Pearse Doherty (Donegal, Sinn Fein)
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Has it ever discussed with insurance companies the issue of artificial intelligence?
Pearse Doherty (Donegal, Sinn Fein)
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Has Insurance Ireland discussed the issue of artificial intelligence and machine learning?
Pearse Doherty (Donegal, Sinn Fein)
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Has Insurance Ireland an innovation partnership with Accenture?
Pearse Doherty (Donegal, Sinn Fein)
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Has it reported that companies that develop, for example, data management capability and control and utilise the massive data that are collected across the insurance value chain are the ones that will differentiate themselves from the rest? Has it also stated companies need to adapt their analytics and optimise customer experience to keep and grow their share of the wallet?
Pearse Doherty (Donegal, Sinn Fein)
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Does Accenture chair and sponsor the innovation task force with Insurance Ireland?
Pearse Doherty (Donegal, Sinn Fein)
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Was it involved in, for example, breakfast briefings for the industry concerning artificial intelligence and machine learning?
Mr. Gerry Hassett:
I am in the role a couple of months and I cannot be specific about this. I have no doubt, however, that there could well have been a meeting at a high level in terms of broad industry trends on this issue. We would most certainly not have got involved in discussing any specific strategies.
Pearse Doherty (Donegal, Sinn Fein)
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The reason I raised this is because Mr. Hassett just said that the issue of artificial intelligence and machine learning is not something Insurance Ireland has discussed. Not only has it discussed this issue, its partner, Accenture, is involved in breakfast briefings with Insurance Ireland on this. One does not have to go far to find this out. It is in Insurance Ireland's 2017 annual report, along with a nice picture of Insurance Ireland with Accenture and a nice background with the heading “Artificial Intelligence and Machine Learning Breakfast Briefing”.
Pearse Doherty (Donegal, Sinn Fein)
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Which one?
Mr. Gerry Hassett:
That we discussed those issues with our members. We run events and invite people to come to them. They discuss market trends. We are careful to ensure this is done neutrally. At these meetings, we never discuss a specific strategy that a company may have. I am pretty sure that something like that would have involved trends in Europe. I do not see any issue with that. That is not the same as saying we discussed it.
Pearse Doherty (Donegal, Sinn Fein)
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Hang on.
Pearse Doherty (Donegal, Sinn Fein)
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Accenture in Insurance Ireland’s 2017 annual report stated, “We will also roll out the next series of breakfast briefings to the membership of Insurance Ireland on matters of most strategic importance to them and we plan to launch a survey in 2018.” This was accompanied with a nice collage of pictures of previous breakfast briefings to the members of Insurance Ireland, which are the insurance companies, with the background, “Artificial Intelligence and Machine Learning Breakfast Briefing”. That was the subject of these breakfast briefings. Is it the case that Insurance Ireland held a meeting on artificial intelligence and machine learning but did not discuss it with members of the insurance industry?
Mr. Gerry Hassett:
In preparation for this session today, I read a study by the European Insurance and Occupational Pensions Authority, EIOPA, on machine learning and big data in insurance because I expected to be asked about it. I do not think I was breaching my fiduciary responsibilities by doing so. Any professional in an industry attends events to broaden his or her learning. I do not think it is the same thing that we discussed specific strategies. Clearly, these are trends that are in the industry. Most industry professionals would want to know more about them.
Pearse Doherty (Donegal, Sinn Fein)
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That is fine. However, I take issue with Mr. Hassett’s earlier comment suggesting this was never discussed. We can give him the transcripts on this. Mr. Hassett mentioned the EIOPA analysis done with 222 insurance companies. Did any insurance companies in Ireland participate in that?
Pearse Doherty (Donegal, Sinn Fein)
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Did Insurance Ireland participate?
Pearse Doherty (Donegal, Sinn Fein)
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Is Insurance Ireland aware of any insurance companies using third-party data in terms of their pricing structures?
Pearse Doherty (Donegal, Sinn Fein)
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Would Mr. Hassett be shocked to learn if it were the case that third-party data, such as loyalty cards in SuperValu chains or credit card information, was used by insurance companies to look at behaviour analysis for dual pricing?
Pearse Doherty (Donegal, Sinn Fein)
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Dual pricing, however, is not about pricing the risk. Dual pricing is the layer above the risk where one looks at behaviour statistics. For example, the EIOPA study, in which 222 insurance companies participated, makes it clear. A different type of data is used. There are the data we provide to the insurance companies. Third-party data are purchased legally by the companies from other sources. They are from people ticking boxes allowing their data to be sold. Irish Rail, for example, has one of those tick boxes. The third part is where insurance companies use artificial intelligence to draw down data from Facebook posts, video posts and so forth. Is Mr. Hassett aware that either of those second pieces of data are being used by the insurance industry?
Mr. Gerry Hassett:
I am not aware of any specific instances. I would note, however, that one of the conclusions of the EIOPA report, which covered 200 companies across Europe, was that there is no evidence as yet that an increasing granularity of risk assessment is causing exclusion issues for high-risk customers, although firms expect the impact of big data analytics to increase in the years to come. Big data analytics is a factor in all industries. It is a growth sector in every industry where one is looking for insights into one’s customers.
Kieran O'Donnell (Fine Gael)
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I understand the point about insurance companies and competition for new customers. What I find difficult to understand is where they are increasing premiums for customers who are loyal because they believe they can get away with it. How does Insurance Ireland regard that as competition? I can understand the points about getting market share. It would be expected that their financial modelling would ensure they were not being reckless with unsustainable rates. How can Insurance Ireland, however, justify a financial model that effectively increases a premium because the customer will be held because of loyalty?
Kieran O'Donnell (Fine Gael)
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Does Insurance Ireland condone that?
Kieran O'Donnell (Fine Gael)
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Does Insurance Ireland condone the practice by its members, based on analysis of data, of deliberately loading premiums on customers, without any risk justification for the increase, because in all circumstances they are so loyal they will swallow the increase?
Kieran O'Donnell (Fine Gael)
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No. Does Mr. Hassett condone this practice?
Kieran O'Donnell (Fine Gael)
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No. Mr. Hassett sees nothing wrong with that practice.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Hassett mentioned the European Insurance and Occupational Pensions Authority study. The study described price optimisation, which is dual practice, as when the consumer's premium depends not only on the risk but also on price sensitivity and the likelihood of shopping around, and stated that it could be challenging from a fairness and ethical perspective, and that this is particularly important regarding the potentially adverse impact on vulnerable customers of old age, low income and low level of study and education.
Mr. Gerry Hassett:
Big data is an emerging area and there is a discussion in every industry about how it should be used and whether there should be limits, what is appropriate and what is ethical. That is not confined to just the insurance industry. My reading of the EIOPA report was that it stated this is an area that will require further evaluation and learning as the techniques become more refined. I also point to the conclusion that stated there was no evidence as yet that increasing granularity is causing exclusion. I see it as a risk that needs to be monitored but we do not yet have enough evidence to make a final conclusion.
Pearse Doherty (Donegal, Sinn Fein)
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The report also made the point that insurance companies will move into this area in an accelerated way, particularly over the next three years, and that insurance companies now use data sources such as genetics. Is Mr. Hassett aware of any company in Ireland using genetics as a data source?
Mr. Gerry Hassett:
The first half of the Deputy's statement, that companies are getting more into data analytics, is a statement that could be made about any industry on the planet. Genetics in particular is an area that needs very careful consideration. I am not aware of any company specifically using genetics. This is an issue that is much bigger than insurance. How artificial intelligence and machine learning are deployed in consumer or commercial markets is an area that will become an emerging discussion point. They can add value but clearly there are areas where people can be hurt if companies stray over the line. We have to get the balance right.
Pearse Doherty (Donegal, Sinn Fein)
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Will Insurance Ireland host a forum on the ethics of dual pricing and reaching Insurance Ireland's aim of protecting consumers, just as it did on fraud and compensation culture?
Pearse Doherty (Donegal, Sinn Fein)
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I have focused mainly on the impact of dual pricing on consumers. We know it is banned in at least 17 states in the US. A major study was done in Britain, which has many of the same operators as we do in this market. Some of them have acknowledged to the committee they also operate dual pricing in this market. The study in Britain found it affected 6 million consumers and that they were overcharged by €1.4 billion as a result of dual pricing in insurance. This is one end of it. There is another end with regard to dual pricing or price optimisation, which is the payment of claims. As a result of this behavioural big data being gathered by the insurance companies people have a different awards made to them by the insurance industry not on the basis of the validity of the claim but on the basis of behavioural attitudes, such as low levels of education, disabilities or older age. Is Mr. Hassett aware of anybody in the Irish sector using big data to optimise claims payouts?
Pearse Doherty (Donegal, Sinn Fein)
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Given Insurance Ireland's aims, will it broadly ask the insurance companies to see whether this is-----
Mr. Gerry Hassett:
We are a long-term industry. We need to treat people who make a claim fairly and honourably. I am in favour of any method that allows us to do that. I can see a scenario where gathering information could help make a more accurate assessment but I can also see scenarios where it may potentially lead to some negative practices. This is balance we have to find. I am not aware of any company that right now is acting in any way that I believe would be unfair.
Pearse Doherty (Donegal, Sinn Fein)
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This could play out, for example, whereby an award made in a certain Eircode postcode area which, according to CSO data may have a very low level of education, perhaps only primary education, is less than what is paid out for an identical claim in Dublin 4. An insurance company would pay out less in a more impoverished area because it would believe that person would be less likely to challenge the claim payout.
Pearse Doherty (Donegal, Sinn Fein)
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With regard to the issue of dual pricing, when representatives of the Financial Services and Pensions Ombudsman came before us they were very clear in their opening statement and under questioning that they believed it would be wrong if pricing was not based on risk and if the insurance companies had a pricing factor that was not the same for consumers right across the board, and that the ombudsman would be able to adjudicate on this matter. Is it the case that we could have a tracker mortgage scandal mark 2, whereby a number of complaints being adjudicated by the Financial Services and Pensions Ombudsman with regard to dual pricing could open up a serious problem for the insurance industry because it would have to ban it if the ombudsman came down on the side of the consumer?
Mr. Gerry Hassett:
I do not believe this is a realistic risk. They are very different products. A tracker mortgage is a 20-year commitment while a motor policy can be renewed after 12 months. We have very high levels of switching and 50% of our market involves brokers, whereby people are actively advised on the other options in the market. The market fundamentals are very different.
Pearse Doherty (Donegal, Sinn Fein)
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I understand that mortgages and insurance are two different products. The point and correlation I am making is that a small number of people took a case to the Financial Services and Pensions Ombudsman with regard to tracker mortgages and the small number of people who saw their claims through opened up a serious problem, and rightly so, for the banks, which had to end the practice and restore more than €600 million into customers' accounts. If the financial services ombudsman adjudicates as he has suggested, and it will have to be proved that insurance companies are not basing simply on risk and are punishing customers as a result of loyalty, would the insurance industry not have a major problem? This is part of the insurance industry. Insurance Ireland will do a conference with Milliman next week.
Pearse Doherty (Donegal, Sinn Fein)
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Insurance Ireland has done a number of conferences with it in the past. Milliman has made the risk very clear. It stated the risk could manifest in the form of bad press prompting more customers to shop around and potentially it could spiral into a bigger problem for a firm. It has made it clear that it is about punishing loyalty. Has Mr. Hassett seen the research done by the Financial Conduct Authority, FCA?
Pearse Doherty (Donegal, Sinn Fein)
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Does he accept the FCA research? I will recount some of it. If someone renews with an insurance company on four or more occasions, the loyalty premium that person will be hit with is 20%. If people stay with the same company for ten years or more, the average loyalty premium is 40%. Does Mr. Hassett accept this?
Pearse Doherty (Donegal, Sinn Fein)
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How come thousands of people can go on to a company's website when they get their renewal quote and get a reduced price, excluding the new customer offers that can range from 10% to 20% and are sometimes capped at a value of €150? How come this happens? It happens across the board. Is Mr. Hassett seriously telling me, as the CEO of Insurance Ireland, that he does not have a clue this is happening?
Pearse Doherty (Donegal, Sinn Fein)
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My final question relates to those who are insured abroad. Insurance Ireland moved on this a year and a half ago when a process was set up. The witnesses might recount this to the committee. Many people are very frustrated. For instance, I was contacted by one individual who was insured by AXA Insurance in another European country. When the person moved back to Ireland their no-claims bonus was not recognised. The person is with the same company, although with a different headquarters. Is the honouring of no-claims bonuses regardless of where a customer is insured being addressed by Insurance Ireland? Different companies operate different policies but this is something that needs to clarified.
Mr. Gerry Hassett:
It is proper to raise this issue, which I see is a matter of concern. We are happy to raise it with members as a matter of concern and do some work on it. However, we cannot engage in a "Will you or will you not?" type of conversation because that is part of their pricing strategy and we cannot have that conversation with them.
Pearse Doherty (Donegal, Sinn Fein)
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I am not talking about pricing. Companies can price whatever way they want-----
Pearse Doherty (Donegal, Sinn Fein)
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If a company insures a customer in Germany and the same company insures that person in Ireland when they return home, should the company not accept that the customer has a no-claims record with the company?
Pearse Doherty (Donegal, Sinn Fein)
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That does not get away from the fact that some insurance companies will not recognise that a person was insured with the same company in a different jurisdiction and has a clean driving record. When such individuals return they lose their no-claims bonus and are fleeced.
Kieran O'Donnell (Fine Gael)
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That concludes our consideration of this matter today. I thank the Competition and Consumer Protection Commission, CCPC, and Insurance Ireland for assisting the committee. The committee will give further consideration to the differential pricing issue in due course. We look forward to the outcome of the commission's deliberations. I hope the message goes back to the members of Insurance Ireland that we need a proper functioning insurance industry. The industry is there to protect the consumer. The figures do not add up. We hope that the penny will eventually drop with the insurance industry that it must provide value for money and there is no perception or otherwise that it is fleecing customers.